Media: All about ... AOL

AOL Advertising did well in the last IPA Digital Media Owners survey,
conducted in September 2009. When asked to assess the statement "My
overall experience of dealing with this supplier is a good one", more
than 60 per cent of respondents agreed or strongly agreed where AOL was
concerned.

It came fifth in the league table, behind Specific, Vibrant,
Channel4.com and Microsoft Advertising. Tellingly, though, it was the
outfit that had shown most improvement in comparison with the previous
survey, conducted six months previously.

This was not just commendable, it was almost miraculous, given all that
the company had been through. A corner had been turned. Or so we
thought. Given all that's happened in recent days, the next IPA survey
could make for interesting reading.

Because last week, the company seemed to be back in somewhat familiar
territory, with all sorts of defenestrations befalling unlucky members
of the AOL tribe; while the slightly less unlucky were (seemingly) being
invited to act dazed and numb or to run around in circles like headless
chickens.

High-profile departures in the UK included Michael Steckler, the
company's managing director, and Sarah Perry, the sales director of its
advertising sales division, AOL Advertising. Both took voluntary
redundancy and their exits were not unconnected with a continuing AOL
drive to save $300 million globally by cutting 2,300 jobs - a
third of the workforce.

And, yes, it's true that this programme was announced back in November
2009 - but it has now been announced that offices are to be closed in
Europe (France, Germany, the Netherlands and Spain, for instance) and
the cuts will run deep in the US too.

One surprising announcement last week concerned Shashi Seth, AOL's
senior vice-president of global advertising products. He had been hired
as recently as September - and though he jumped rather than being pushed
(he's to join Yahoo!), the timing is no accident and it seems to be a
rather baleful (for AOL, at any rate) indicator.

1. The big-picture context here is AOL's continuing determination to put
behind it the fall-out from what has been described in many quarters as
the worst business deal in corporate history. Based on chronically
optimistic forecasts of its growth prospects, AOL was vastly overvalued
when it merged with Time Warner in 2001 to create a monster valued at
$350 billion. The merger was always an accident waiting to happen
in that the two corporate cultures were never going to fit together
satisfactorily - but management problems were compounded when AOL's
business model (and therefore its revenue prospects) fell apart almost
overnight. It entered the merger as an internet service provider; it has
rapidly been forced to reinvent itself as an advertising-supported
portal wedded to a sales network operation for third-party website
operators.

2. In February 2008, Time Warner announced it was splitting AOL's ISP
operations from the rest of the business, with a view to their disposal
on a country-by-country basis. In the UK, the purchaser was Carphone
Warehouse.

3. In May 2008, AOL completed an $850 million acquisition of the
social networking website Bebo, just in time to see it eclipsed by
Facebook. Yahoo! has continued to sell Bebo's advertising, despite
expectation that this task would be brought in-house - and speculation
intensified last year that AOL hopes to offload it.

4. In March 2009, AOL announced it had persuaded Google's senior
vice-president, Tim Armstrong, to become AOL's chief executive, to
prepare the company for the next phase, most notably spinning it out of
Time Warner once more via a New York Stock Exchange flotation - which
eventually went ahead in December 2009. In the interim, Armstrong
embarked on a restructuring and rebranding process. For instance, its
advertising operations, which had been grouped into a division called
Platform A in 2007, were reconstituted in a new division called AOL
Advertising.

5. In the wake of last week's departures, it was announced that Kate
Burns will run AOL UK while retaining her existing role as the company's
European head of advertising sales.

WHAT IT MEANS FOR ...

AOL

- Many observers had expected (or hoped) that AOL would go from strength
to strength, having freed itself from the stodgy management outlook of
the Time Warner megalith. Further, they'd reckoned that the company had
managed to absorb the worst of any restructuring pain last year.

- So recent events are devastating for the company's confidence rating,
both internally and externally; and it reopens questions about the
company's strategic vision.

- It desperately needs to conjure up some good news - and soon.

ADVERTISERS

- The biggest concern for the advertising market is whether there will
be any real continuity in terms of day-to-day representation and trading
- and some in the market were disappointed, to say the least, about the
company's lack of willingness to keep them informed last week.

- And, yet, there is a remarkable level of residual good will. As Will
Smyth, the head of digital at OMD UK, puts it: "I don't think what is
happening is by any means a total disaster. We've seen similar
restructuring programmes taking place at other online sales operations,
with significant numbers of departures - it's just that some other
companies have managed to do it without attracting attention to
themselves. Trading is going to continue to be difficult for the next
few months. Businesses that were well managed and well run during the
boom years will be fine. Flabby businesses will suffer - as in any
sector. AOL is continuing to take steps to ensure it's a well-run
business."